IMF Executive Board Completes First and Second Reviews Under the Stand-By Arrangement and Ex-Post Evaluation of Exceptional Access for Romania

The Executive Board of the International Monetary Fund (IMF) today completed the first and second reviews of Romania’s performance under its economic program supported by a 24-month Stand-By Arrangement (SBA). The authorities are treating the arrangement as precautionary and do not intend to draw under it. Completion of the reviews makes an additional amount equivalent to SDR 389.4 million (about €436.3 million) available for disbursement, bringing the total resources currently available to Romania under the SBA to an amount equivalent to SDR 584.1 million (about 654.4 million). The SBA with access of SDR 1,751.34 million (about €1.96 billion, 170 percent of quota) was approved on September 27, 2013 (see Press Release No. 13/376).

In completing the reviews, the Executive Board approved a waiver of nonobservance of the performance criterion on the general government overall fiscal balance, which was missed by a small margin, and modifications to program conditionality. The Executive Board also approved the Romanian authorities’ request to add a review based on end-June 2014 performance. The additional review would coincide with the planned Article IV consultation and the mid-year budget rectification.

The Executive Board also discussed an ex post evaluation (EPE) of the SBA with Romania approved in March 2011. Romania treated the arrangement as precautionary and completed all the reviews. The EPE finds that the program objectives were largely met, although progress on the structural reform agenda was uneven and vulnerabilities remain.

“Romania is making good progress under the precautionary SBA. Economic growth reached a post-crisis high in 2013, the current account narrowed significantly, and inflation has fallen to historic lows. However, the economy and the financial sector remain vulnerable to shocks. Steadfast program implementation is essential to preserve macroeconomic stability and policy buffers in this election year.

“The budget deficit target for 2014 provides for further fiscal adjustment, while also supporting greater absorption of European Union funds. Improved capital spending, better revenue collection, and implementation of an expenditure control system are key priorities. Additional action is required to reform the health care sector and shield vulnerable households from deregulated energy prices.

“Efforts are needed to strengthen monetary policy transmission. The banking system remains well capitalized, but the authorities need to accelerate the resolution of non-performing loans and closely monitor risks from parent bank deleveraging. The non-bank financial regulator needs to be reformed in line with best international practices.

“Structural reforms in the energy and transportation sectors have progressed. Electricity prices for commercial users have been liberalized and initial public offerings were held in two major energy companies. Sustained progress in state-owned enterprise reform, including a restructuring of the freight railway company and a reduction of arrears will continue to be critical components of the program.

“The EPE concluded that the program objectives were largely met, although progress on structural reforms was uneven and vulnerabilities remain. The evaluation draws several lessons for Fund engagement with Romania. First, program conditionality, particularly as regards complex structural reforms, is no substitute for country ownership. Second, addressing financial sector risks requires strong coordination between home and host supervisors, appropriate macro-prudential policies, and data transparency.”